No Deal Between U.S. and North Korea and a Whole Lot of Data Released

February 28, 2019

The summit between U.S. President Trump and North Korean President Kim ended prematurely without an agreement. Share prices in Asia lost 1.8% in South Korea, 1.3% in Indonesia, 1.2% in Singapore, 0.9% in Hong Kong, 0.8% in Japan but only 0.4% in China.

In Europe, there’s been scant net movement in the German Dax or Paris Cac but the British Ftse is down 0.5%.

The dollar is unchanged against the Australian dollar, Chinese yuan, or Mexican peso. The dollar has eased 0.8% versus the Swiss franc, 0.3% relative to the euro and 0.2% vis-a-vis the yen. The greenback edged up 0.1% against sterling and the kiwi.

The 10-year U.S. Treasury yield had been down as much as 2 basis points but following the release of U.S. fourth-quarter GDP now shows a net overnight rise of 2 bps. 10-year sovereign debt yields in Germany and the U.K. were also lifted and now show net gains overnight of 3 and 2 basis points.

Among commodities, gold strengthened. Oil is more or less flat.

U.S. real GDP expanded 2.6% at a seasonally adjusted annual rate last quarter, down from 3.4% in 3Q and 4.2% in the second quarter of 2018. Personal consumption and nonresidential investment accounted for all of the rise. Residential construction recorded a fourth straight contraction. Net exports exerted a smaller drag of 0.2 percentage points. Inventories and government spending gave minimal lifts. Real GDP was 3.1% higher than a year earlier last quarter and posted the largest calendar year advance (2.9%) in 2018 since 2015. The personal consumption price deflator, expressed at a seasonally adjusted annual rate from the previous quarter, has progressively decelerated from 2.7% in the final quarter of 2017 to 2.5% in 1Q18, 2.0% in 2Q18, 1.6% in 3Q18, and 1.5% last quarter. Compared to the final quarter of 2017, the total PCE deflator and the Core PCE price index were 1.9% higher.

Several other countries reported low and/or declining price signals.

  • German CPI inflation was just 1.6% in February, the third straight sub-2% result.
  • German on-year import price inflation halved to 0.8% in January from 1.6% in December, 3.1% in November and 4.8% in October. Export price inflation dipped to 1.1% last month from 2.0% as recently as October.
  • French consumer prices were flat on month in February after a 0.4% drop in January. On-year French CPI inflation of 1.3% was down from 2.2% in October. PPI inflation stood at 1.4% last month.
  • Spanish CPI inflation was at 1.1% in February. That’s the average also of the latest three reported months and down from 2.3% in the year through October.
  • Italian consumer price inflation, which had slid 0.2 percentage points in January to a 9-month low of 0.9%, returned to 1.1% in February but remained a half percentage point below the December-November level.
  • South African producer price inflation has decelerated to 4.1% as of January from 6.8% two months earlier, thanks to month-on-month declines in both December and January.
  • Portuguese on-year CPI inflation rose this month to a 3-month high. But the monthly change was again negative, and the 12-month rate of increase stayed below 1.0%.
  • Producer prices in Singapore and Malaysia recorded January-over-January on-year declines of 1.9% and 3.6%, and Greek producer prices were unchanged that month from a year earlier.
  • Icelandic producer prices dropped 1.0% between December and January, cutting the 12-month increase to a 3-month low.
  • The British Nationwide house price index dipped 0.1% in February and was only 0.4% higher than a year earlier compared to a 2.2% on-year rise through February 2018.
  • Canadian PPI inflation was cut in half to 1.0% last month.

French GDP grew 0.3% in 4Q18 , same as in the third quarter and resulting in a 0.9% advance from a year earlier and average growth of 1.5% in 2018 after a 2.3% expansion in 2017.

The Swiss index of leading economic indicators fell for a fifth straight month in February, printing at 92.4 versus 96.2 in January and 102.5 last September.

A deeper-than-forecast 3.7% monthly contraction of Japanese industrial production in January resulted in no change from a year earlier and led officials to downgrade the trend designation from “picking up slowly” to “pausing.” The previous label had been used since an upgrade last October.

Japanese on-year retail sales growth also disappointed, dropping to an 8-month low of 0.6% in January from 1.3% in December.

The NBS government-compiled manufacturing and non-manufacturing purchasing manager indices for China each fell in February. The manufacturing index printed at 49.2, its third straight sub-50 reading and lowest since February 2016. A non-manufacturing 54.3 score was a 2-month low.

South Korean industrial production in January was merely 0.1% greater than a year earlier, but retail sales there posted a 4.0% advance.

Indian on-year GDP growth slowed to a 5-quarter low of 6.6% last quarter.

A 1.2% quarter-on-quarter rise of Swedish GDP in 4Q18 was the most in a year and a half and lifted the on-year rate of growth to 2.4% from 1.5%.

Swiss on-year GDP growth slowed a full percentage point last quarter to a six-quarter low of 1.4%. In contrast to above-trend growth in the first half of 2018, both net exports and domestic demand exhibited diminishing momentum during the second half of last year.

On-year growth in Poland slowed to a six-quarter low of 4.9% in 4Q18.

Portuguese on-year GDP growth decelerated to 1.7% last quarter from 2.1% in 3Q18 and 2.5% last spring.

Brazilian GDP grew 1.1% between the final quarters of 2017 and 2018, which was a tad less than on-year growth of 1.3% in 3Q18.

From 4Q17 to 4Q18, real GDP expanded 2.2% in both Denmark and Finland.

British consumer confidence remained depressed in February, printing at November’s -13 after back to back readings of -14 in December and January.

The Bank of Korea left its base rate at 1.75% after its latest review of monetary policy. The rate had been cut five times by 25 basis points each from March 2014 through February 2016 but was hikes by 25 basis point in November 2017 and again by that amount in November 2018. A released statement proclaims that “as it is forecast that inflationary pressures on the demand side will not be high for the time being, and that the domestic economy will sustain a rate of growth that does not diverge significantly from its potential level, the Board will maintain its accommodative monetary policy stance.”

Bank of Japan Board member Suzuki gave a speech that expresses the concern that weaker growth is pacing on banks but does not see a need to increase monetary stimulus now.

Canada’s current account deficit last quarter of C$ 15.48 billion was 53% larger than the prior quarter’s shortfall.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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